Aberdeen recommends overweight in APAC real estate

Investors should consider going overweight in Asia-Pacific real estate as a way of achieving better risk diversification, according to a senior executive at Aberdeen Asset Management.

Speaking to Asia Asset Management, Russell Chaplin, chief investment officer – property, said that the region’s real estate market should constitute between 20% and 30% of a global property portfolio.

Mr. Chaplin added, however, that it was imperative that investors sought out the right vehicles and partners, as Asia’s real estate market was “much harder to understand for somebody from a distance”, compared to other regions.

“It is not like investing in the US which is 35% to 40% of the global real estate market – that is one market relatively easy to understand. Europe is a little harder to understand – but most of the markets are at least relatively well developed,” he said.

Mr. Chaplin earmarked Japan and Australia as his two favourite markets in the region. He said that the former market is just emerging from a prolonged period of weakness, while the latter has largely been insulated from recent global financial crises.

“You start typically with Japan and Australia. They are really core markets in the region. Hong Kong and Singapore typically come in as well, but they are very small markets and are very volatile markets as well,” he explained.

He also cited New Zealand and Korea, alongside Malaysia, China and India, as more peripheral real estate investment markets.

Mr. Chaplin said that property markets in these countries can provide effective portfolio diversification, as they are largely not correlated. “If you just look at the economies of the Asia-Pacific markets and how uncorrelated they are comparing to the European economies, European economies are pretty highly correlated. If you look at the average correlation between India and China; China and Australia; Australia and Japan; the correlation is much lower. The benefit of diversification within the region should be stronger than it is in other regions,” Mr. Chaplin explained.